Socialism, Capitalism and Free Markets in Social Networking

Wow! It seems like just yesterday that I was blogging about Digg specifically and social networking in general, and here I am again. Today's note has to do with several interesting topics that ultimately prove a point: a free market is just that - free - and there is absolutely no stopping it. In social networking parlance, this may mean several things: that people will require that the places they inhabit to be free from editorial manipulation; that people will insist on one person, one vote; and that particularly skilled individuals might decide at some point that "ego food" is an insufficient reward for their efforts, and that cash really IS king. This is pretty basic stuff for someone coming at this from a markets perspective, and the saga being played out among Digg, its Top Diggers, and Mr. Jason Calacanis and Netscape illustrates that market rules apply in social networking as in other venues in a most elegant fashion.

As noted in my previous post, let me make the caveat that I am neither a big Digger nor a big techie, so I am approaching this little game of Canadian doubles (Digg on one side, with Netscape the Digg community on the other) from the vantage point I know best - using the markets as a metaphor for the most interesting happenings of the past several weeks.

Digg, the Socialist - a bungled attempt to enfore the "wisdom of crowds"

As noted in my last Digg-related post, there had been a backlash against Digg for two key problems:

1. The inability of certain popular stories to make it to the front page, and the impact of a small group of Diggers impacting the entire network; and

2. The seemingly self-serving editorial policies of Digg management, squashing criticisms of its practices and algorithms by effectively banning the posters of these comments.

In classic market style, the noisy protests of the citizenry caused a response from the "government," which came in the form of a change in policy that effectively broke the sacred one person-one vote rule. As noted in Kevin Rose's post on the Digg blog:

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It is our goal to create a platform in which you can share and promote news that is important to you. What is changing however is how we are handling story promotion. While we don't disclose exactly how story promotion works (to prevent gaming the system), I can say that a key update is coming soon. This algorithm update will look at the unique digging diversity of the individuals digging the story. Users that follow a gaming pattern will have less promotion weight. This doesn't mean that the story won't be promoted, it just means that a more diverse pool of individuals will be need to deem the story homepage-worthy.

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Top diggers will be a ranked list of people that find/digg (not submit) stories that become popular. This list will also be sorted by how diverse the digger is - meaning if they digg stories from lots of different people and their stories become popular, they'll rank highly.

Does this kind of seem like Animal Farm - "some (things x) are more equal than others?" Isn't the social networking model one which follows something more akin to a 99/1 rule (versus the classic 80/20 rule), where 1% of the population does 99% of the work and creates 99% of the value? If this is, in fact, the case, then don't Kevin's words and Digg's new policy penalize those for being particularly skilled as promoters and networkers versus a those who get more Diggs from a more "diverse" set of users? More to the point, what does the user community want? From what I've read they want one person-one vote - not a big shock. It seems to me that Digg has undertaken an experiment in social engineering, one which has caused an even greater backlash among those whom are the most important to Digg - the most active, reputable and popular Diggers.

That said, there are certainly those who feel Digg's changes and (purportedly long-standing) emphasis on not allowing "gangs" or promotion groups to drive placement are positive. As noted in the comments to a piece in Marketing Shift about Digg's motivations underpinning its algorithm changes, the crowd seems pretty split at present. Some interesting perspectives were included in this post:

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Kevin and Jay said the intention has never been to allow "gangs" of users to game the system, and while Digg has always looked for patterns of groups who consistently digg the same stories, Digg will soon update its algorithm to further prevent gang activity. Kevin said that while friends who track each others diggs shouldn't be discriminated against, "20 people who always vote together need to be treated as one mind" by the algorithm. (Jay said today's outage at Digg was for a software update, but he said he didn't know all of the features that were being added).

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No democracy is perfect, but Digg promises to continually update its algorithm so that users will be the primary weighting factor determing how articles get promoted on the site. And bloggers are correct to make sure that they are doing their job well.

Who is right and who is wrong? I have no idea. What I do know, however, is that the rules of the Internet and social networking WILL follow those of other markets, particularly as they mature, and I believe this is what we're seeing at Digg and now at Netscape. Digg is using top-down policies to create a desired end. Regardless of what the writers of Market Shift or the commenters are saying, it is the Top Diggers who have really created the network value whose views matter most. Suffice it to say, Jason and Netscape are approaching this 99/1 problem from a totally different angle.

Netscape, the Capitalist - using cash to create an expert network

Now let's take a look at what's going on at Netscape, which stands in stark contrast to our friends at Digg. Jason publicized his strategy to lure the top (20) writers from Digg, reddit, flickr, del.icio.us, MySpace, etc. from the angle of "get paid $1000 a month for doing what you're already doing."

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Today we have around 200 bloggers on the Weblogs, Inc. payroll. Two years later John Battelle took the idea and extended it in a blog repping business. Om Malik has raised funding and stolen a Red Herring reporter, and even the nascent vlogging space is in full-blown talent war mode. What was foreboden three years ago is commonplace today.

Talented people's time in our society is primarily engaged with money. As a result we are doubling the staff of DownloadSquad and we've increased the rate we are paying our bloggers to $10 a post on that blog (much more for features). As a result I'm sure our traffic will double over the next three months--in fact I will guarantee that it will happen. Money does change everything.

Talent wins, and talent needs to get paid. I love paying talented people so they can sleep well at night doing what they love. That's my biggest joy in business: gettin' people paid.

Before launching the new Netscape I realized that Reddit, NewsVine, Delicious, and DIGG were all driven by a small number of highly-active users. I wrote a blog post about what drives these folks to do an hour to three hours a day of work for these sites which are not paying them for their time. In other words, they are volunteering their services. The response most of these folks gave back to me were that they enjoyed sharing the links they found and that they got satisfaction out of being an "expert" or "leader" in their communities.

Excellent... excellent (say that in a Darth Vadar/Darth Calacanis voice for extra impact).

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The concept of "free" content producers, which I think WIRED called crowdsourcing, is going to be a short-lived joke. A loophole in the content business that will be closed by savvy startups which identify the top 5% of the audience and buy their time.

If we're (DIGG, Delicious, Flickr, Reddit, MySpace, Netscape, etc) are going to make businesses out of this space we should share the wealth.

Does this sounds like Kevin Rose and those at Digg? Hardly. It sounds more like Gordon Gekko - "greed is good." I've got to say that Jason has keen insights into both human behavior and the evolution of markets. Part of what is happening here is that skilled social networkers are now beginning to understand that their passion actually has real economic value - in short, the market is maturing, and it will become more efficient as those who create value (the "influencers" in Tipping Point-speak) will demand some of that value. Social networking is growing up - this is good.

The Top Diggers - mad as hell and not taking it any more

In the wake of the change in one person-one vote at Digg, many Top Diggers have taken down their avatars in protest. In general, when running a company, one doesn't seek to piss off the most valuable customers - unless the company truly feels that they are better off without them. Maybe Digg does feel this way. If so, let's see if their "forced democracy" model gains currency and a broad following. I am afraid, however, that any manufactured attempts at democracy can really only lead to one end - failure. I think this is playing right into Jason's hands, and never shy about his motivations, he pretty much said so himself:

There is an interesting protest going on over at digg where--from the best I can tell--the top users are taking down their user icons and going back to the default icon. The debate is over the top digg users facing having their votes count for *less*. The top users are taking so much control of the site that digg is now fighting their impact. Kevin discusses strategies for neutering the top users here. (Note: Kevin does not allow comments on the digg blog--go figure).

Frankly I think digg is tripping over itself here. The top users earned their spot and they should be reward for their contributions--not penalized. One person, one vote--that's the rule. You can't change that or you change the fundamental premise of democracy. Think about it for a second, is digg so against paying their top users that they are now working on ways to undermine their influence. That is what this is really about right? digg wants to break the 1% who are controlling the site.

These people earned their spots as top users, and it's really unfair for them to pay the price for putting in countless hours to get to the top of the list. This shows yet another Achilles heal to social media as a business: you're really not in control. Of course, control in business is really an illusion in my mind unless you own some distribution channel, spectrum, or monopoly. So, perhaps it's better to say that in social media you are really, really, *really* not in control. You are the host of the party, but if the party people leave so might the party.

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It is so clear that the top 1% of social bookmarkers are so talented that they should do it for a living. That's why we started our Netscape Navigators program which pays top social bookmarkers. Right now it's just a part-time job for folks, but in another year or two I bet we have people doing this full-time all over the place. We watched this happen in blogging from 2003 to 2006.

From a selfish position I really hope digg keep underminning the top users because they are more than welcome at Netscape, we promise we will never change the one person, one vote rule.

Not too self-serving, right? Thing is, it is difficult to argue with his logic, in my opinion. But that is just my opinion.

Conclusion

An introductory-level treatise on Economics 101 couldn't provide a better case study on the effect of market forces, and how attempts to artifically control markets (kind of like old-style Soviet centralized planning) can only lead to an unfortunate end - revolt by the proletariat against the "intelligensia." Now we'll see who the real intelligensia are in the networked world - you've got it, the proletariat! Call it what you want - "wisdom of crowds," the rise of citizen journalism, the power of social networking, whatever - the point is that attempts to impose rules on a community without buy-in will fail. The market makes the rules, and those who try to do otherwise will invariably face peril - as has Digg.

The social networking market is maturing, and I do think that pay-for-performance will become an increasingly important part of the equation. If high-traffic bloggers can generate significant revenues from their sites, why shouldn't those creating content (or buzz) for anothers' site get paid for creating value? They should, they are and will do so at an increasing rate in the future. Just my two cents.

Comments

[TallStreet.com]

Check out http://www.tallstreet.com/

[P-Air]

You might want to note that Google's ever evolving Pagerank algorithm falls into this space as well, but because they only worry about the natural link behavior that people use, any changes there does not stand the risk of creating an uprising that adversely affects their biz. It's only merchants that really get hurt and they're accustomed to getting the short end of the stick (note credit card chargeback rules as an example of this). The reality is that the Diggers that post often should have nothing to worry about if they're not operating in gangs, since it's highly unlikely that they will submit the same stories as others. Sure, there may be some overlap, but only gang behavior can guarantee that the overlap will be significant. Hence this noise is for naught, but the fact remains that communities are finicky and so it's best to find ways of leveraging their natural activity rather than impose that they do anything for your service. del.icio.us, like Google, being another good example of that. It's when you start asking users to play a more active role for others (rather than for themselves) that they start thinking you *owe* them something ;-)

[Yaser Anwar]

Content is like Capital. It flows to where it finds the most attractive returns.

If Digg doesn't compensate its top posters, whether monetary or non-monetary (in this case democratic 1-person 1 vote system), sooner or later some firm will make those posters an offer they can't refuse.

The 1K offer by Netscape may not have been enough, but tomorrow if someone offers them a great position that full fills their self-esteem even with less pay, those posters may have no choice but to migrate.

[Roger]

Hakku, that makes sense because reddit hasn't messed with the 1 person-1 vote concept. While, over time, some of the top reddit posters may fall for the lure of a paid venue such as Netscape's, the 1 person-1 vote model really characterizes reddit as a democratic as opposed to a socialist platform. This (now) stands in stark contrast to Digg's platform of forced equality through engineering. I think the compensation issue is a side-light to the core issue of democracy (1 person-1 vote) versus socialism (forced equality). As long as a platform is democratic, top posters will make their own judgements as to whether or not they want to get paid for their efforts. Some will invariably choose to do so while others may not. However, if these conditions aren't present it is hard to imagine retaining any of one's top posters, as they neither get the respect and placement they've earned nor do they get monetary rewards for their efforts. It's that simple.

[hakku]

reddit -- another "socialist" as you would describe it -- seems to be doing just fine...